Evaluation Criteria as Trello Filters

PROCESS

16 Criteria for Evaluating Startup Ideas

A systematic approach to prioritize startup ideation backlogs.

At AARRRG, we value process over intuition for any repetitive task, especially those tasks that can have a profound impact on how we spend our time. One such area is how we might sort a backlog of hundreds of product ideas, often represented as problem statements. For context, a problem statement for Uber might have looked something like this:

Our [smartphone app] helps [business exectives] in [San Francisco] who [want to go from one place to another in style] by [reducing the time it takes to get picked up by a mercedes] and increasing [n/a], unlike [a normal car service], because we [leverage the GPS chip in smartphones to connect freelance drivers with passengers at the push of a button].

We then will ask the following questions about the business model, with these items prioritized over the second subset of inquiries.

1. MISSION ALIGNMENT. We can’t build everything, so one of the most foundational questions is whether or not the idea aligns with our mission, values, and impact goals.
2. MARKET SIZE. Is this a large and growing market, and can we imagine a strategy where we capture a significant portion of it?
3. TEAM/IDEA FIT. Is the founding team a perfect fit for this particular business? Do we believe they have what it takes to get the job done?
4. NETWORK EFFECTS. NFX has written extensively on this, so I won’t go into much detail here other than to say they can make a significant impact in reaching critical mass, and we love businesses that leverage them.

To further prioritize our backlog, we effectively toggle another series of true/false filters, where those ideas that hold the most filters rise to the top.

1. SCALABILITY. Does the business model have virtually no limits to growth, and do we think we can continue to capture more of the market without spending additional money on building the product?
2. OTHERS DO THE WORK. Does the business model value get created for free by external parties? As is the case with user-generated content.
3. GAME-CHANGING COST STRUCTURE. For example, 30% cheaper than any other competitor.
4. REOCCURING REVENUES. These are self-explanatory.
5. EARNING VS. SPENDING. Are revenues received before incurring COGS? The classic example is how airlines require passengers to pay for a ticket long before the flight spends fuel.
6. HIGH SWITCHING COSTS. Such as when customers lock into multi-year contracts.
7. DEFENSIVE MOAT. Is there IP or something intrinsic to the business model that protects from the competition?
8. UNDERUTILIZATION. Does the business model leverage underutilized resources, like a spare room in a house?
9. DISRUPTION POTENTIAL. Is an incumbent’s process, technology, or organization currently monopolizing the industry, or do things work the same way today as they did in 1990?
10. CAPITALIZE ON CHANGE. Is this idea only possible because of a recent change in technology or policy? i.e., the introduction of smartphones and the JOBS act.
11. ASPRIN. This idea solves the customer’s terrible pain and isn’t just a nice-to-have vitamin.
12. MAGICAL. Is there something about the idea that sounds magical, or too good to be true. The classic example is “Tap a button, and a Mercedes shows up in 5 minutes.”

As always, please feel free to add comments with any questions, clarifications, or challenges to this process.